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Google’s runaway success in the search-engine business threatened to spark an upheaval in the online media world, as it emerged that Microsoft has made a tentative takeover approach to internet giant Yahoo.

People familiar with the situation said that the talks between the two – the latest in a series of on-again, off-again discussions in the past year – were preliminary and could lead to an alliance or other forms of cooperation. By late on Friday, one person familiar with the talks said an outright acquisition had become “unlikely”.

The talks have been prompted by an acceleration in the shift of audience and advertisers online, and Microsoft’s failure to build effective search engine and online advertising arms of its own, say analysts and industry executives.

News of the bid approach capped a week of upheaval in the media industry, as both new and old media companies tried to catch up with the shift towards digital forms of consumption. Reuters on Friday said it had received a bid approach, known to be from Canadian publisher Thomson, while Rupert Murdoch’s News Corp rocked the newspaper world this week with its unsolicited bid for Dow Jones, whose assets include the internet’s biggest paid subscription site and one of Reuters’ main newswire competitors.

Yahoo’s shares closed up nearly 10 per cent, valuing the company at $42bn. However, the shares are still about 25 per cent below their level at the start of last year. Microsoft’s shares fell 1.3 per cent.

With one of the biggest audiences on the internet, Yahoo would make a prize catch for any company looking to extend its online reach, said Imran Khan, internet analyst at JPMorgan.

For Steve Ballmer, Microsoft’s chief executive, who is estimated to have spent hundreds of millions of dollars in the past three years to try to build both a search engine and an online advertising network capable of keeping pace with Google, the deal would also mark an aggressive new front. This battle has become more intense following Google’s $3.1bn agreement to buy DoubleClick, which would launch it into the online display advertising business. But combining Microsoft and Yahoo would create huge management and cultural challenges, analysts warn.

The bid approach to Yahoo points to growing frustration at Microsoft after more than a decade of trying to become a major force on the internet.

While its MSN service claims one of the biggest audiences, it has failed to compete head on with a succession of internet leaders, from AOL to Yahoo and Google. “They’ve spent $1bn building a business that is melting like an ice cube today,” said Youssef Squali, an analyst at Jefferies & Co.

Copyright The Financial Times Limited 2017. All rights reserved.
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